'Three Amigos' look to reduce trade frictions, Keystone nags

LARRY DOWNING, Reuters

LARRY DOWNING, Reuters

Mark Felsenthal and Lizbeth Diaz

TOLUCA, Mexico (Reuters) - U.S. President Barack Obama and his Canadian and Mexican counterparts on Wednesday discussed ways to reduce any trade frictions at a summit in central Mexico, but clear divisions remained over the Keystone XL oil pipeline project.

U.S. Commerce Secretary Penny Pritzker said earlier this month that the 20-year anniversary of the North American Free Trade Agreement (NAFTA) between the three nations was an appropriate moment to look at how to "upgrade" North American trade ties.

However, retooling the trade pact between Canada, Mexico and the United States is not necessary because trans-Pacific talks will cover any gaps left by NAFTA, Mexican Foreign Minister Jose Antonio Meade said this week.

"We have every incentive to make this work," Obama said in the central city of Toluca after meeting with Mexican President Enrique Pena Nieto and Canadian Prime Minister Stephen Harper. The NAFTA bloc leaders are dubbed the "Three Amigos".

"So a lot of our conversation has focused on how do we reduce any continuing trade frictions, how do we make sure that our borders are more efficient?" he added. "We're going to keep investing in infrastructure like roads, bridges, border crossings so our goods are getting to market faster."

Earlier on Wednesday, while aboard Air Force One, Obama signed an executive order that will attempt to speed from days to minutes how quickly small businesses gain U.S. government approval for exports or imports.

The top bilateral economic issue between the United States and Canada is the proposed $5 billion Keystone pipeline project, which would transport Canadian crude deep into the U.S. and shape the distribution of crude supplies in the region.

Asked about Keystone, Obama highlighted climate change as a concern.

"I said previously that how Keystone impacted greenhouse gas emissions would affect our decision, but frankly it has to affect all of our decisions at this stage because the science is irrefutable," Obama said as the summit wrapped up.

"We're already seeing severe weather patterns increase, that has consequences for our businesses, for our jobs, for our families, for safety and security," he added, saying he and Harper were "working together around dealing with greenhouse gas emissions".

Canada does not want to handicap its industry by going it alone on greenhouse gas emissions without U.S. participation.

'PRETTY DEFINITIVE' REPORT

"In terms of climate change, I think the State Department report already was pretty definitive on that particular issue," Harper said. The State Department report played down the impact the pipeline would have on climate change, piling fresh pressure on Obama to approve it.

The drawn-out process has created friction between Canada and the United States.

"I know it's been extensive and at times, I'm sure Stephen feels, a little too laborious," Obama said in the spacious interior courtyard of the office of the governor of the State of Mexico, a position Pena Nieto held before being elected president.

Obama will have the final say on whether to allow the pipeline, a decision not expected for many months.

Harper earlier singled out the company behind the pipeline, TransCanada, which was part of the business delegation accompanying him on the visit, as the sort of Canadian firm that will benefit from trade opportunities.

As the leaders met, a Nebraska court on Wednesday invalidated the governor's decision to allow the Keystone pipeline to pass through the Midwestern state, casting new uncertainty over the controversial project to link Alberta's oil sands with refineries in Texas.

Mexico, the world's 10th biggest crude producer, has said it does not see the pipeline as a competitive threat. Mexico is already beginning to diversify its oil exports away from the United States given surging production there.

Looking beyond the pipeline, Obama and Harper both reacted cautiously to news of a truce between the Ukrainian government and protesters on Wednesday. Obama also condemned violence in Venezuela, and urged the government there to focus on the "legitimate grievances" of its people.

Obama praised Mexican leader Pena Nieto for overhauling swathes of his country's economy, including the key energy and telecoms sectors, in a bid to boost competition and economic growth that has long lagged that of regional peers. However, it will be years before the full economic impact of the reforms is felt.

Economy Minister Ildefonso Guajardo told Reuters on Tuesday Pena Nieto's economic reforms should help lift foreign direct investment in Mexico to between $30 billion and $40 billion a year by 2016. The United States is Mexico's top trade partner.

(Additional reporting by David Alire Garcia and Julia Symmes Cobb in Mexico City and Roberta Rampton and Steve Holland in Washington; Writing by Simon Gardner; Editing by Ken Wills, Cynthia Osterman and Richard Borsuk)